Life insurance is the payment of a sum of money (death benefit) by an insurance company to the beneficiaries after your death. These beneficiaries are named in the policy. Your beneficiaries may use the money for whatever purpose they choose. This said, it’s important to consider who your beneficiaries will be.
Insurance agencies, such as our insurance agency in Rochester, Minnesota, will usually discuss with you who your beneficiaries can be before signing up. But by definition, a beneficiary is the person or entity you name in a life insurance policy to receive the death benefit once you will pass on. You can name one person, two or more people, the trustee of a trust you have set up, a charity, or your estate. If you don’t name a beneficiary in the policy, the death benefit will accrue automatically to your estate. But to specify beneficiaries is recommended.
Life insurance policies offered by an independent insurance agency will usually require you to name both primary and contingent beneficiaries. Primary beneficiaries get the death benefits if they can be found, while contingent beneficiaries get the death benefits if the primary beneficiaries can’t be found.
In naming primary beneficiaries, you must also include their social security numbers as well as clear and proper identification. This makes it unlikely for disputes to arise with regard to claiming death benefits. Usually, primary beneficiaries will be your spouse, natural and adopted children, and other family members or relatives. It is also important to specify how the death benefits will be handled if one or more beneficiaries can’t be found.